Why does a charity have to make a distinction between its fundraising activities and its charitable program activities?
Short answer
A charity is constituted to pursue certain charitable objectives. These may include: to relieve poverty; to advance education; to advance religion; or to benefit the community (as defined by the courts). Fundraising activity is usually necessary to finance such charitable objectives. Fundraising is allowed as long as it complies with the CRA’s guidelines. CRA guidelines were developed to help charity’s understand what fundraising conduct is permissible and what is impermissible. Broadly, CRA wants to ensure that the charity is spending substantially all its resources on programming, rather than administration and/or fundraising.
Registered Charities are required to report fundraising expenses separately from charitable program and other expenses on its annual T3010 form. In order to do so, what constitutes fundraising activity has to be well-defined, and the expenses associated with such activity have to be distinguishable from other costs.
Does the CRA compare fundraising expenses to the amount we raised through fundraising?
Short answer
Yes. The ratio of fundraising expenses to fundraising revenues is one of the factors that the Canada Revenue Agency (CRA) reviews.
This CRA grid guides them in determining when additional information on fundraising costs is needed.
Ratio of costs to revenues | CRA Approach |
| Costs under 35% of revenues | Generally acceptable and unlikely to generate questions or concerns. |
| Costs ranging from 35% to 70% | The CRA will check to see if there is a trend toward higher fundraising costs. The higher the ratio, the more likely that the CRA will ask for more detailed assessment of expenditures. |
| Costs above 70% | Rarely acceptable without a rationale to show that the charity is in compliance with fundraising requirements. |
Reprinted from Guidance on Fundraising by Registered Charities.
Long answer
In addition to considering where the charity’s ratio fits into the range, the CRA will look at the Best Practice Indicators and any areas of concern that could lead to further review.
The CRA will also consider these factors in assessing a charity’s fundraising activities and costs:
- The size of the charity – this may impact fundraising efficiency
- Causes with limited appeal – fundraising for some causes can be more challenging and have limited results
- Donor acquisition or long term campaigns, such as planned giving initiatives – could result in donations received in later years
More…
Charity Central learning module on Best Practice Indicators
Read more on Best Practice Indicators and CRA Guidance on Fundraising by Registered Charities
Is there a formula for calculating the costs of fundraising?
Short Answer
If an activity clearly has both fundraising and charitable objectives, you may be able to divide up the costs of this activity based on the costs of the resources used for each objective. In some cases, the input costs related to each objective are discrete—as when different staff within your charity prepare different parts of a publication—and can be reported on your T3010 form as separate costs. The costs will show here the same way they do in your financial records. If the costs are not discrete, you should allocate them based on reasonable proportions applied consistently. Allocation of costs usually requires that the activity not bear traits that would cause it to be considered entirely fundraising (see long answer below).
Examples
- Eco-Charity publishes a newspaper insert with 65 per cent content from its program department and 35 per cent content from its development department. The staffing expenses for each department are the same (i.e., personnel are paid similarly regardless of which department they work in). It costs $10,000 to print and distribute the insert. The cost to the program department is $6,500 (a T3010 charitable expenditure) and the cost to the development department is $3,500 (a T3010 fundraising expenditure).
- Cup-of-Kindness Charity published a newspaper insert with 75 per cent of the content produced by its program department and 25 per cent of the content produced by the development office. Personnel in the development office are slightly better paid than program staff. Costs were allocated according to the resources used to produce the content for each department: the expenses of the program department to produce 75 per cent of the content (a T3010 charitable expenditure) and the expenses of the development office to produce its 25 per cent of the content (a T3010 fundraising expenditure). Since the value of the development office resources was more than 25 per cent—its salaries are slightly more expensive—this was reflected in the allocation of 73 per cent and 27 per cent.
Costs are not always discrete. The costs of printing and mailing covered all the materials regardless of objective. In this case, the charity assigned costs in proportion to the amount of content devoted to each objective—73 per cent as a charitable expenditure and 27 per cent as a fundraising expenditure.
Long Answer
- If an activity’s main objective is fundraising, then all the resources that are used have to be reported as fundraising expenditures on the T3010 form.
- A charity can show that an activity was undertaken without fundraising by satisfying one of these two tests:
Substantially All Test
If 90 per cent or more of the resources used for an activity is to further an objective other than fundraising, then none of the expenses have to be reported as fundraising. - Four Part Test
If an activity did not pass the substantially all test, the charity may still show that the activity happened without soliciting support by answering the four questions in the Four Part Test.
More…
Substantially All Test
Four Part Test
CRA Guidance on Fundraising by Registered Charities
We don’t want to jeopardize our registered charity status. How do I determine if our charity is spending too much on fundraising?
Short answer
Anything you spend on fundraising—both direct expenditures and amounts spent or held by another party to do fundraising on your behalf—must be tracked and reported on your annual T3010 filing.
Long answer
Registered charities should regularly review their fundraising activities and the associated costs in relation to their other activities and costs. When amounts spent on fundraising become disproportionate or unreasonable compared to the charity’s other work, there is a risk that the registered charity is not satisfying its regulatory obligations.
The CRA watches for two ways that a charity may not be properly focused: if the charity appears to be spending too much time or too much money on fundraising. Fundraising must not be the centre of attention of the charity nor should a charity’s time, effort, and other resources be devoted to fundraising rather than to carrying out its charitable purpose.
My registered charity receives the bulk of its funding from government or corporate sponsorships. Do I still need to be concerned about the disbursement quota, and can I spend this money however I like?
You should at least think about it. Registered charities that receive the majority of their funds from government, corporate sponsorships or sources other than donors should keep a very tight rein on their costs anyway, since they are still required under the Income Tax Act to devote substantially all their resources toward charitable ends.
How does our charity figure out the fundraising costs of an activity that is both fundraising and charitable?
Short answer
If an activity clearly has both fundraising and charitable objectives, you may be able to divide up the costs of this activity based on the costs of the resources used for each objective. In some cases, the input costs related to each objective are discrete—as when different staff within your charity prepare different parts of a publication—and can be reported on your T3010 form as separate costs. The costs will show here the same way they do in your financial records. If the costs are not discrete, you should allocate them based on reasonable proportions applied consistently. Allocation of costs usually requires that the activity not bear traits that would cause it to be considered entirely fundraising (see long answer below).
Examples
- Eco-Charity publishes a newspaper insert with 65 per cent content from its program department and 35 per cent content from its development department. The staffing expenses for each department are the same (i.e., personnel are paid similarly regardless of which department they work in). It costs $10,000 to print and distribute the insert. The cost to the program department is $6,500 (a T3010B charitable expenditure) and the cost to the development department is $3,500 (a T3010B fundraising expenditure).
- Cup-of-Kindness Charity published a newspaper insert with 75 per cent of the content produced by its program department and 25 per cent of the content produced by the development office. Personnel in the development office are slightly better paid than program staff. Costs were allocated according to the resources used to produce the content for each department: the expenses of the program department to produce 75 per cent of the content (a T3010 charitable expenditure) and the expenses of the development office to produce its 25 per cent of the content (a T3010 fundraising expenditure). Since the value of the development office resources was more than 25 per cent—its salaries are slightly more expensive—this was reflected in the allocation of 73 per cent and 27 per cent.
Costs are not always discrete. The costs of printing and mailing covered all the materials regardless of objective. In this case, the charity assigned costs in proportion to the amount of content devoted to each objective—73 per cent as a charitable expenditure and 27 per cent as a fundraising expenditure.
Long Answer
- If an activity’s main objective is fundraising, then all the resources that are used have to be reported as fundraising expenditures on the T3010 form.
- A charity can show that an activity was undertaken without fundraising by satisfying one of these two tests:
Substantially All Test
If 90 per cent or more of the resources used for an activity is to further an objective other than fundraising, then none of the expenses have to be reported as fundraising.
Four Part Test
If an activity did not pass the substantially all test, the charity may still show that the activity happened without soliciting support by answering the four questions in the Four Part Test.
More…